The euro continues to hover around the $1.07 mark, maintaining its downward trajectory against the US dollar, largely influenced by investors favoring the more dovish stance of the ECB compared to the Fed. European stock markets experienced a dip, with the broad European equity index closing 0.5% lower, marking the third decline this week. France's CAC 40 saw a sharper drop of nearly 0.9%, hitting its lowest point since February, as markets reopened post a midweek European holiday and analysed the Fed's rate decision. German bond yields mirrored movements in US treasuries, declining across the yield curve.
Despite being somewhat overlooked by markets, Eurozone manufacturing sectors faced a seventh consecutive month of contraction in April, marking its longest downturn since 2013. Input costs and output charges continued to decrease, while business sentiment showed improvement for the second consecutive month, reaching its highest level since February 2022. In other European news, the Swiss franc surged against both the US dollar and the euro following a higher-than-expected inflation report, leading to a reassessment of looser policy expectations by the SNB. Annual inflation in April rose to 1.4% from a 2 ½ year low of 1% in the previous month. Concerns over the pace of inflation acceleration, despite warnings from the SNB about a bumpy recovery, raised doubts about the likelihood of another rate cut in June. Meanwhile, the Czech National Bank reduced its two-week repo rate by 50 bps to 5.25%, citing ongoing disinflation and economic weakness.
In terms of technical analysis, EUR/USD has entered a new range-bound phase since March 23rd, fluctuating within a ±50pip range centered around $1.07. Currently, the 21-day SMA at $1.0715 seems to limit further euro gains, while the 100-week SMA at $1.0630 acts as a robust support level. However, this pattern could face challenges from seasonal trends, as historical data indicates the euro tends to depreciate by an average of 0.68% against the Greenback in May since 1971.
